Your Goal This Year: Raise Credit Score
As credit policies seem to be getting tighter and more stringent in these days of the credit crunch, one of your goals over the coming year should be to raise your credit score. Most consumers do not think about their credit score on any kind of regular basis, but doing nothing about your credit score, year after year, is probably one of the worst things you could do.
This fact is particularly true for mortgage loans. Not too long ago, you could get approved for a very attractive mortgage loan with a song and a dance. But increasing your credit score is also important for other types of finances and credit that you likely have, such as car loans, credit cards, bank loans, and more.
The reason it is important to have your credit score as high as possible is that almost all lenders for any kind of financial transaction will look at your credit score so they can make an informed decision as to how much of a credit risk you may represent to them when and if they approve your loan request. The rates, programs, and incentives they will offer you is very dependent on how much of a risk they think you represent to them, and that risk factor is determined for the most part by your credit score.
Just as an example, consider the typical mortgage loan, which very likely amounts to a six digit figure for most mortgage holders in this day and age. The difference of about 25 points in your credit score might be the difference between getting an interest rate that is as little as a tenth of a percentage higher on the mortgage loan. Is a tenth or couple tenths of a percent a big deal? Over the life of the loan, even those tenths of a percent can add up to well over $10,000 more than you would have paid if you had taken the time to raise your credit score.
With regard to your credit score, there are some things reflected on your credit report which you have no control over, such as your amount of income. You also cannot control the total amount of your outstanding debt, but here is where it gets tricky. The actual amount of your outstanding debt may not be accurately reflected on your credit report.
In addition, the status of each of your financial obligations may not be accurately reflected either. Multiple studies have found that the majority of consumers have one or more errors in their credit report. These errors run the gamut of having accounts listed that do not belong to you, which is common for people with common names. It may have a debt reflected as being past due when it really is completely up to date. It may have your balance listed as $8000 when in reality your balance on that account is $80. All of these errors compound into producing a credit score for you that is lower than it should be if things were reported accurately.
Your first step in this process is to get copies of your credit report and credit score from each of the three major credit bureaus. Go over them with a fine tooth comb and then file a dispute with the credit bureau for anything that is not accurate. The credit bureau is obligated by law to either verify the information as correct, or correct it, or in some cases, even remove it.
Take steps so that you do not become a victim of your own credit score. Invest the time to raise your credit score and make it a regular part of your standard financial responsibility tasks. The money you will save will serve a much better purpose in your own wallet than it will being paid out in loan payments.
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